Behind the Veneer - Tasmanian Greens MPs

TA ANN: BEHIND THE VENEER
Table 1: Summary of Ta Ann profits and losses 2006–2010, AU$ millions 121
AU$ millions 2006 2007 2008 2009 2010
Profit/(loss) (0.4) (2.1) (4.8) 0.4 (11.0)
Made up of:
Revenue (sales of veneer) 0.0 2.8 22.6 29.8 37.6
Less costs:
Staff costs 0.0 2.3 5.2 7.7 9.4
Wood fibre & cost of sales 0.0 1.5 15.6 23.5 32.9
Other expenses 0.9 1.9 2.1 2.6 4.2
Gives: Operating profit/(loss) (0.9) (2.9) (0.3) (4.1) (8.9)
Plus: Finance and tax expenses/benefits 0.5 0.8 (4.4) 4.5 (2.1)
Gives: Net profit/(loss) (0.4) (2.1) (4.8) 0.4 (11.0)
profitably is due to a combination of factors,
including the very strong Australian dollar, the highly
competitive global plywood market and its high
overheads which require greater volume throughput
to achieve economies of scale. The operating losses
are occurring despite the fact that the price paid
to Forestry Tasmania for its peeler billets is lower
than Ta Ann’s Asian hardwood alternatives. It is also
possible that TAT’s parent company is making profits
at the expense of TAT (because Malaysia has a lower
company tax rate than Australia) but the issue of
transfer pricing is not considered in this report.
To deal with its operating losses, TAT is
likely to work hard to grow economies of scale
(i.e. increasing volumes of native forest logged),
cut mill costs, diversify operations (for example,
by becoming a bio-fuel seller) and put pressure
on payments to suppliers (e.g. by downgrading
billet qualities on delivery to its mills). TAT is
already in dispute with its electricity provider
over a AU$1.4 million unpaid electricity bill.
Ta Ann’s decision to invest in Tasmania was
based on an assumed exchange rate of 75 cents. 122
In the six years since then, the Australian dollar has
strengthened consistently and has been above parity
with the USD for some time now. Most economists
are predicting that the AUD/USD will stay above
parity until the end of 2012 and possibly for much
longer after that if the commodity export boom to
China continues to push up the terms of trade.
This will make operating profitably very
difficult for TAT. TAT has stated that it needs
to achieve a 28% sales price increase to restore
profitability. Unless the Australian dollar collapses
it is difficult to see how this could be achieved.
It appears that Forestry Tasmania is underselling
the timber that comes from Tasmania’s native forests.
In a 2010 statement to the Huon Valley News, local
timber harvesting contractor Ian Crouch explained
that the logs now provided to the Ta Ann mills were
previously sold as high-value sawlogs. Now, large
tracts of native forest are being primarily harvested
for the supply of peeler logs – a low-value product. 123
In a submission to the Tasmanian Government,
actuary Naomi Edwards explains that although ‘Ta
Ann’s Huon operation has been fully operational
for over two years and consumed some half million
tonnes of peeler logs … there has been no uplift
to Forestry Tasmania’s profitability as a result of
these sales. 124 This means that there has been little
to no return to the Tasmanian public from the
deal between Forestry Tasmania and Ta Ann.
The implications of ongoing
losses at Ta Ann Tasmania
Assuming that the exchange rate does not
significantly move over the next few years, TAT will
need to aggressively cut costs, increase volumes
and diversify its activities to stem its losses. This is
a similar position that Gunns found itself in during
2007 when its markets went into a downturn.
Inevitably, the rate of native forest clearing will rise.
TAT has already flagged that it
is pursuing these options.
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